American Express 2015 Annual Report Download - page 73

BUSINESS SEGMENT RESULTS
We consider a combination of factors when evaluating the composition of our reportable operating segments,
including the results reviewed by the chief operating decision maker, economic characteristics, products and services
offered, classes of customers, product distribution channels, geographic considerations (primarily United States
versus outside the United States) and regulatory considerations. Refer to Note 25 of the “Consolidated Financial
Statements” for additional discussion of the products and services by segment.
In light of the organizational changes discussed under “Business,” our financial disclosures will reflect segment
changes starting in the first quarter of 2016. This overview discusses the operating segments used for financial
reporting in 2015.
Results of the business segments generally treat each segment as a stand-alone business. The management
reporting process that derives these results allocates revenue and expense using various methodologies as described
below.
TOTAL REVENUES NET OF INTEREST EXPENSE
We allocate discount revenue and certain other revenues among segments using a transfer pricing methodology.
Within the USCS, ICS and GCS segments, discount revenue generally reflects the issuer component of the overall
discount revenue generated by each segment’s Card Members; within the GNMS segment, discount revenue generally
reflects the network and acquirer component of the overall discount revenue. Net card fees and travel commissions
and fees are directly attributable to the segment in which they are reported.
Interest and fees on loans and certain investment income is directly attributable to the segment in which it is
reported. Interest expense represents an allocated funding cost based on a combination of segment funding
requirements and internal funding rates.
PROVISIONS FOR LOSSES
The provisions for losses are directly attributable to the segment in which they are reported.
EXPENSES
Marketing and promotion expenses are included in each segment based on actual expenses incurred, with the
exception of brand advertising, which is primarily reflected in the GNMS and USCS segments. Rewards and Card
Member services expenses are included in each segment based on actual expenses incurred within each segment.
Salaries and employee benefits and other operating expenses reflect expenses such as professional services,
occupancy and equipment and communications incurred directly within each segment. In addition, expenses related
to support services, such as technology costs, are allocated to each segment primarily based on support service
activities directly attributable to the segment. Other overhead expenses, such as staff group support functions, are
allocated from Corporate & Other to the other segments based on a mix of each segment’s direct consumption of
services and relative level of pretax income.
CAPITAL
Each business segment is allocated capital based on established business model operating requirements, risk
measures and regulatory capital requirements. The business model operating requirements reflect the capital needed
to support operations and specific balance sheet items. The risk measures reflect considerations for credit, market
and operational risk.
INCOME TAXES
An income tax provision (benefit) is allocated to each business segment based on the effective tax rates
applicable to the various businesses that comprise the segment.
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